Nostro and vostro (Italian, from Latin, noster and voster; English, ours and yours) are accounting terms used to distinguish an account you hold for another entity from an account another entity holds for you. The entities in question are almost always, but need not be, banks. CHIPS is a computerised telecommunications network provided by the New York Clearing House Association. It is a large-value wire transfer payment system and acts like an automated clearing house for interbank fund transfers. SWIFT messaging standards are used by banks, brokers, dealers, corporates, investment managers, etc., to transmit desired information underlying foreign transactions. SWIFT is the banking language that is widely accepted and understood globally in the banking industry.

• The vostro account is held in the currency of the country where the money is on deposit.
• For both nostro and vostro accounts, the domestic bank (i.e., the bank that is holding the account) acts as the caretaker for the account and is sometimes referred to as the „facilitator“ bank.
• Conversion of foreign currency in to home currency is the fundamental of foreign exchange.
• A vostro bank account is an account that one party is holding for another party.

SWIFT messages typically result in monetary transactions between institutions. The currency of a Nostro account depends on the country’s currency where the account is maintained. Foreign exchange involves collecting at a centre of a given currency and then giving it to the center in a different currency. Foreign Exchange takes place only if it is converted to home currency. To use a foreign currency, that particular currency must be exchanged into home currency.

Nostro and vostro accounts

Conversion of foreign currency in to home currency is the fundamental of foreign exchange. Therefore, in order to put through the foreign exchange transaction, the bank which is authorized to deal in foreign exchange, maintains an account with its overseas Bank to keep stocks of foreign currencies. Normally, such account is a current account in the books of the overseas Bank. So, the ‘Nostro Account’ of the Indian bank with its branch/correspondents in USA is said as ‘Our Accounts with You’.

A vostro account is established to enable a foreign correspondent bank to act as an agent or provide services as an intermediary for a domestic bank. These services include executing wire transfers, withdrawals, and deposits for customers nostro vostro loro in countries where the domestic bank does not have a physical presence. Besides situations where banks hold money for individual customers, a Nostro account can be useful in Forex exchange trading or in interbank situations.

Arun’s Banking Circle

The term ‘Vostro’ is also an Italian word which means is ‘Yours’. Suppose City Bank (USA based bank) opens an account in HDFC BANK (India based bank) with the Currency INR (Indian Rupee), then this type of accounts is called Vostro Account. An account that one bank holds for another bank, usually one in another country.

If your accounting is accurate and you see a discrepancy with the bank statement, contact the bank immediately. SWIFT has introduced new system of authentication of messages between banks by use of Relationship Management Application (RMA) also called as SWIFT BIC i.e.Bank Identification Code. ICICI provides financial services and promotes economic development and growth. Learn about the industrial credit and investment corporation of India. I hope my post helps to clear up some confusion for any other student out there.

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For both nostro and vostro accounts, the domestic bank (i.e., the bank that is holding the account) acts as the caretaker for the account and is sometimes referred to as the „facilitator“ bank. The account of the State bank of India was held with the bank of America in dollars. In simple words, if there is any bank in India that opens an account to deal with transactions with a foreign bank, it will be called a Nostro Account.

So whenever you will do a transaction you will need IFSC of specific branch and SWIFT of that branch through which your money will be transferred. Under this arrangement, the Authorised Category I banks enter into tie-ups with the non-resident Exchange Houses to open and maintain their Vostro Account. Corresponding Banking is the relationship between two banks which have mutual accounts with each other, r one of them having account with the other. For example BOI wants to transact with HSBC, but doesn’t have any account, while SBI maintains an account with HSBC in U.K. Credit facilities, both non-fund and fund-based, are not granted against the balances held in this account. Nostro accounts can be opened by authorized national banks only.

Society for Worldwide Interbank Financial Telecommunication (SWIFT)

Interbank deposits can involve changing money into foreign currency denominations for various financial purposes. In national or regional markets, an interbank offered rate reflects a prime lending rate between banks. These rates are often used to determine interest on various accounts held by third parties, or Vostro accounts. Those looking at Vostro accounts may be trying to figure out what interest is due to the account holder, or what restrictions are in the financial agreement between the two parties.

To understand different foreign exchange transaction terms, we must first understand what the terms of home currency and foreign currency are. Let’s take an example, and US dollars are used in the USA. Foreign currency can be explained like any other currency other than home currency.